Bond discount entries for bonds payable transactions.
On July 1, 2010, Brower Industries Inc. issued $32,000,000 of 10-year, 12% bonds at an effective interest rate of 13% receiving cash of $30,237,139. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the company is the calendar year.
Instructions
1.Journalize the entry to record the amount of cash proceeds from the sale of the bonds.
2.Journalize the entries to record the following::
a.The first semiannual interest payment on December 31, 2010, and the amortization of the bond discount, using the straight-line method. (Round to the nearest dollar)
b.The interest payment on June 30, 2011, and the amortization of the bond discount using the straight-line method. (Round to the nearest dollar)
3.Determine the total interest expense for 2010.
4.Will the bond proceeds always be less that the face amount of the bonds when the contract rate is less that market rate of interest?